High‐Cost Credit and Consumption Smoothing. This paper ended up being previously circulated as “For Better and for even worse? Ramifications of Usage Of High‐Cost Credit Rating.”

We thank the editor, Robert DeYoung, an referee that is anonymous Todd Gormley, Mark Jenkins, Paul Landefeld, Donald Morgan, Nick Roussanov, Luke Taylor, and Jeremy Tobacman for helpful commentary, in addition to seminar participants in the Wharton class, the GW/FRB/GFLEC Financial Literacy Seminar while the Consumer Expenditure Survey Microdata Workshop. I will be grateful to Jimmy Lee, Ryan Pfirrmann‐Powell, Geoffrey Paulin, Arcenis Rojas, as well as others into the Division for the Consumer Expenditure Survey in the Bureau of Labor Statistics for help accessing the private Consumer Expenditure Survey files, and I also have always been grateful to Paul Amos of this Wharton GIS lab for advice about GIS. The Jay H. Baker Retailing Center in the Wharton class supplied ample economic help for the task ahead of the writer’s work with all the Federal Reserve.The analysis and conclusions expressed in this paper are the ones regarding the writer plus don’t always mirror the views for the Board of Governors for the Federal Reserve System, its users, or its staff. This research ended up being conducted with limited use of Bureau of Labor Statistics (BLS) information. The views right here usually do not always mirror the views associated with BLS.


In this paper, We reveal that high‐cost credit helps households smooth usage after durations of short-term distress that is financial. After experiencing distress—that is, extreme climate events—I realize that access to high‐cost payday lending mitigates declines in general investing and nondurable items investing generally speaking. The outcome are especially concentrated among households with a greater tendency to make use of payday credit or that have actually restricted alternatives: low income households, households with not as much as a college level, and households with lower levels of preserving. These outcomes highlight the consumption‐smoothing part that high‐cost credit plays for households with restricted use of other kinds of credit.

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